On The Money Grain Commentary 6-28-12

Corn Outlook:

     Traders have been consumed with weather during the past few weeks and, rightfully so, as early-planted corn is pollinating under extreme conditions.  Last week, the ratings fell 7 points to 56 percent in good-to-excellent condition, the worst seen for this time of the year since 1989.  According to Ag Watch’s yield model, we are looking at a yield of 157.3-155.4 bpa compared to USDA’s current estimate of 166 bpa.  While this is supportive to prices, for now, the financial crisis in Europe is deteriorating and China’s economy is slowing.  This is long-term bearish for commodities.  In other developments, export inspections were 27.0 MB and below the average needed to reach USDA’s target of 1.650 BB.  After sporting a short futures position for a couple of weeks, the trend following funds are now long 105 MB.  The index funds are long 2.015 BB.  USDA’s quarterly grain stocks and acreage estimates will be out tomorrow.    

     December corn has risen nearly 30 percent in value since bottoming at 506.  Prices traded to 656.75 on Wednesday, June 27th where a short-term top appears to have developed.  Last week’s comments mentioned that a top could occur on the 27th.  For the next couple of days, the market will likely undergo a correction in which support should be found at 615.  However, Thursday’s low at 625.5 may be the extent of the pullback.  Once the correction is complete, a rally to 675, 688 or 695 is expected, while a more bullish pattern points to 710.  Cycle analysis shows a top occurring in early July that could end the advance from 506 and possibly last month’s low at 499.  Meanwhile, during July, corn futures are lower 63 percent of the time.  Next week, the odds are 60 percent that December corn will be higher.   

Bean Outlook:

      Weather worries are mounting in soybeans, but not to the extent of corn as it is pollinating.  Conditions are deteriorating as ratings fell 3 points to 56 percent in good-to-excellent condition.  The crop in the Southeast and Delta is blooming and the forecast for extreme heat during the next week will adversely affect yield potential.  While weather markets are emotionally charged, one must always remember that they usually end abruptly.  In other developments, export inspections were 9.1 MB with China taking 4.2 MB or 46 percent of shipments.  Their economy is slowing, which could impact exports to them although expectations are that they will stay firm.  Last week, the trend following funds added 20 MB to their long futures position increasing it to 910 MB.  The longs of the index funds have remain unchanged for three weeks at 755 MB. 

     November soybeans rallied to 1439.75 on Wednesday, June 27th where a top occurred.  Last week’s comments mentioned that we could trade to 1420-1430 with prices peaking on the 29th.  Right now, the market is at an important juncture.  One pattern shows that we could be in the process of establishing an important top.  A close below 1395 verifies this is the pattern developing.  Meanwhile, trading past 1439.75 projects the market climbing to 1470 and possibly as high as 1520.  In the event of a new high, a top is unlikely until after the first week of July.  During the month of July, soybean futures are down 63 percent of the time.  Next week, the odds are 70 percent that November soybeans will be lower. 

 Wheat Outlook:

     Wheat is following corn higher as a smaller corn crop will boost demand for feed wheat.  In addition, prices are underpinned from production concerns in Russia and Australia.  Harvest in the U.S. is progressing rapidly and 59 percent complete compared to the average of 27 percent.  The spring wheat crop has improved slightly to 77 percent in good-to-excellent condition and compares to a rating of 69 percent a year ago.  Export inspections were 19.4 MB and lags the pace needed to reach USDA’s target of 1.150 BB.  The short position of the trend following funds fell 10 MB to 275 MB, while the longs of the index funds stand at 1.005 BB.      

     December wheat traded to 783.25 on Wednesday where a short-term top has developed.  During the next few days, the market is due for a correction with support likely at 755-750.  Once a pullback is complete, a rally to 810 is expected which should wrap up the advance from the low made earlier this month at 649.25 and possibly the low in May at 629.5.  This could occur after the first week of July.  During July, wheat futures are down 58 percent of the time.  Next week, the odds are 80 percent that December wheat will be lower.

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